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Essays on the Transmission of Monetary and Macroprudential Policies



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Patozi, Alba 


Financial markets both influence and contain important information on the transmission of a range of macroeconomic policies. This dissertation explores the link between financial markets and the transmission of monetary and macroprudential policies.

The first chapter, co-authored with Kristina Bluwstein, evaluates the effect of macroprudential policy announcements on systemic risk. We construct a new dataset of macroprudential policy announcements for the United Kingdom and estimate their effect on systemic risk, using a high-frequency identification approach. First, by examining a sample of the largest UK-listed banks, we identify macroprudential policy announcement shocks that were unanticipated by the financial markets. Second, we study the effects of market-based macroprudential policy surprises in a local projection. We find that a perceived macroprudential policy tightening contributes to a substantial reduction in systemic risk in the short run, with effects persisting for several months. The reduction is mostly attributed to the reaction in equity and bond markets.

The second chapter estimates the sensitivity of green firms to monetary policy. I document an upward trend in environmental performance among publicly listed companies over the last decade. I then evaluate the implications of firms becoming ‘greener’ for the transmission of monetary policy on asset prices, credit risk and firm-level investment. I show that green firms, with high environmental scores, are considerably less affected by monetary policy shocks compared to their brown counterparts, with low environmental scores. Moreover, I find that dependence of monetary policy responses on firm-level greenness is not due to intrinsic differences in firms’ characteristics or differences in firms’ social and governance performance, but can be attributed to investors’ preferences for sustainable investing.

The third chapter examines the impact of preferences for sustainable investing on the transmission of monetary policy. I consider a stylized theoretical framework where investors derive additional utility from their holdings of green assets and demonstrate two key findings. Firstly, investors’ preferences for sustainable investing dampen the semi-elasticity of green asset prices to monetary policy shocks. Secondly, contractionary monetary policy shocks result in a tilt of investors’ portfolios towards green assets. Empirical evidence supports both predictions. Specifically, I find that green firms held by index funds with ESG mandates exhibit a lower sensitivity to monetary policy shocks compared to brown firms. Additionally, I find that the share of green assets in the portfolios of institutional investors does indeed rise in response to higher interest rates. Moreover, by analysing mutual fund flow data, I uncover evidence of an "active" portfolio rebalancing channel among institutional investors.





Cavalcanti, Tiago


Climate change, ESG, Heterogeneity, High-frequency identification, Macroprudential Policy, Monetary Policy, Policy Announcements, Sustainable Investing, Systemic Risk


Doctor of Philosophy (PhD)

Awarding Institution

University of Cambridge
Cambridge Faculty of Economics The Cambridge Trust Fund The Cambridge Endowment for Research in Finance Queens’ College The Excellence Fund from the Albanian Ministry of Education.
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